Systemic Bnaks, Eurozone Bailout Packages and the Management of the Sovereign Debt Crisis

he European financial and sovereign debt crisis has led to the adoption of extraordinary levels of austerity in the Eurozone countries that have received bailouts. This paper analyses the five bailout packages in the management of the European sovereign debt crisis: Greece (1^st and 2nd), Ireland, Portugal, and the Spanish banks. It argues that these five Eurozone bailout packages are characterized by a near complete imposition of the costs of adjustment on debtor countries, not on lending institutions outside these countries.  

We present a complex causation perspective to account for this outcome. Interest group approaches highlight the matching between the preferences of banks and the outcomes of the characteristics of the bailout packages. Interest group approaches, however, are plagued by an important shortcoming, namely the absence of banks from the negotiation process of the bailout packages.

Ideational perspectives highlight the importance of interpretations of the causes of the crisis that have resulted in severe terms for debtor countries. Ideational perspectives, however, cannot account for the provision of funding given the different interpretations of France and Germany regarding the introduction of new governance rules in the Eurozone.

Power politics perspectives emphasize the contingent willingness of the ECB to intervene to stabilize bond markets. The purchase of bonds on the secondary markets of GIIPS economies was contingent upon the introduction of a permanent funding institution (ESM) and served as a protective mechanism against potential attempts by some Eurozone members to interfere with its independence.